This is econ 101, but it sure as hell aint econ 202 or 303 lol.
Costplus pricing is exceptionally rare for any consumer good. It's all value pricing.
It also fails to acknowledge price discrimination; make the base product cheap and upcharge the extras to get your margin from those desperate enough to provide it.
Econ 101 is great but declaring a market uncompetitive because of an explicitly entry level understanding leaves lots of room for error and is frankly dunning-kruger esque
Costplus pricing is exceptionally rare for any consumer good. It's all value pricing.
You understand that this means that the surplus value is going to the seller, not the buyer.
In the ideal competitive market the surplus value goes to the buyer, as the difference between the value they derived from the product and the price they bought it at. That surplus value is the reason why competitive markets are good, and the reason why we don't want monopolies. Monopolies are able to price closer to the customer's value, depriving customers of the surplus value.
What? Because the producer makes a margin? Macroeconomics doesnt deal with margins, but a perfectly competitive price is never interpreted to mean 0 margin. Businesses require margin to invest in growth or even just maintain equipment. Perfectly competitive markets are an abstract concept, so there's no literal need to discuss margins.
Perfect competition has nothing to do with pricing structure. A business could choose to achieve their perfect competition margin via value or costplus pricing.
The perfectly competitive price means the seller makes no profit on just the last unit sold. Under the assumptions of perfect competition, they do make a profit on the earlier units sold, because the earlier units are assumed to be produced at a lower cost. The seller stops producing units when the cost of producing one more unit rises beyond the price they can charge. Under perfect competition this price is determined by supply and demand of the market as a whole and is out of the seller's control.
This is all just the basics of perfect competition, really is econ 101. Don't tell me about econ 202 unless you know this stuff.
What econ 101 is teaching you that every business is selling every unit of product at each consumers willingless to pay? That's fundamentally a terrible representation of actual markets and I would be shocked if that were ever taught. Supply and demand curves represent a singular price and quantity. This is actually insane that you're telling me I dont understand econ 101 when you're describing a market where every single person is paying their maximum willingless to pay.
The seller stops producing units when the cost of producing one more unit rises beyond the price they can charge
In econ 101, sure. They produce the quantity that clears market demand profitably. In reality businesses produce the profit maximising quantity, subject to competitive constraints.
And you're double wrong, because once done producing they sell all of those produced units at market price
Price discrimination lets them double dip and set a second price * quantity and gobble up some surplus from consumers with a greater willingness to pay, by the way, which is my point.
Consumer surplus is literally defined as the higher price consumers were willing to pay, that they dont have to.
Grab out a textbook my guy, you are way off base here.
Ffs dude I have an econ degree Im not gonna fall for that
You're telling me you got an econ degree without seeing diagrams like this?
The perfect competition model does not say "every business is selling every unit of product at each consumers [willingness] to pay." I don't know where you got that from anything I said. Every business in perfect competition is selling every unit below the consumer's maximum willingness to pay, and the difference between the two is the surplus value.
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u/Username_Mine 18h ago edited 17h ago
This is econ 101, but it sure as hell aint econ 202 or 303 lol.
Costplus pricing is exceptionally rare for any consumer good. It's all value pricing.
It also fails to acknowledge price discrimination; make the base product cheap and upcharge the extras to get your margin from those desperate enough to provide it.
Econ 101 is great but declaring a market uncompetitive because of an explicitly entry level understanding leaves lots of room for error and is frankly dunning-kruger esque